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Most people define a mortgage on the rate of interest it offers – but with most mortgages, particularly complex ones like self cert mortgages, the headline rate is just one aspect of the entire deal.

Analysis from moneysupermarket.com has found that the arrangement fee charged on a mortgage can be a crucial factor in determining the overall cost of the deal. For example, it found one tracker at 1.99% which would cost an extra £2,600 over two years compared to one at 2.49% with a flat fee of £995. It also found another two year fixed rate deal at 3.44% working out £1,176 cheaper than the 1.99% deal as it carries a £595 fee.

Essentially, the fee can be as important as the rate. A good rule of thumb is the cheaper the rate, the higher the fee – it's a matter of finding the best mix of both for your situation.

Hannah-Mercedes Skenfield, mortgages channel manager at moneysupermarket.com, says: “Although we have started to see a welcome improvement in the mortgage market, with the number of products increasing, and rates starting to fall, we are still seeing some products being promoted for marketing impact, rather than real borrower benefit. Using high fees enables lenders to showcase extremely low rates without losing any of the profit.

“The size of the arrangement fee plays an important part in the overall cost of a mortgage. A more expensive fee may well be worth paying in order to secure a low rate on a large mortgage, but only if that fee is a fixed amount. Mortgage products with percentage fees rarely stand up to those with flat fees, even if their rates are considerably lower.”

So talk to a mortgage professional when it comes to choosing a loan because they can help you find the middle ground between a self cert mortgage with a cheap rate and a low fee.

SOURCE: Moneysupermarket.com, 11/02/10

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